The Federal Deposit Insurance Corporation said that bank profits were down 40.9 percent in the fourth quarter of 2017 compared to a year earlier, due primarily to charges related to the tax overhaul passed in December.
Large banks, which had to write down the value of tax-deferred assets, among other issues related to the new law, accounted for much of the drop. Citigroup, for example, claimed an $18 billion loss.
In the long run, though, the FDIC expects the tax bill to boost bank profits significantly. “Notwithstanding the one-time impact of the new tax law, the overall performance of the industry continued to be positive,” said FDIC Chairman Martin Gruenberg, noting that the number of problem banks is at the lowest level since the beginning of 2008.
JPMorgan Chase raised its outlook Tuesday, saying that it expects a key profitability metric, return on tangible common equity, to rise from 15 percent to 17 percent over the next two to three years, due in large part to the new tax rules. CFO Marianne Lake said the bank had raised its medium-term targets “reflecting tax reform but also reflecting growth.”